Consolidated Financial Statement of ChallengeMe Group

This assignment content provides the consolidated financial statement of ChallengeMe Group, a company that has acquired another company called TakeItEasy Ltd. The statement includes the assets and liabilities of both companies, with adjustments made to eliminate intercompany transactions. The total non-current assets are $3,560,000, while the shareholder's equity is $3,500,000. The consolidated balance sheet also shows a profit after tax of $590,000 and a business combination revaluation reserve of $40,000.

Corporate Accounting 1
1.
a. When we talk about temporary difference, it gives rise to two situations. One is of
Taxable temporary difference, which further creates deferred tax liability. This situation
happens only when either the carrying value of asset is greater than the tax base or the
carrying value of liability is less than the tax base. The other situation is of deductible
temporary difference, which further creates deferred tax asset. This happens when the
carrying value of asset is less than the tax base and when the carrying value of liability is
more than the tax base.
Based on these criteria, the temporary difference of ShouldBeMyOwnWork Ltd’sat 30 June
2018 is
1. Computer depreciation of $ 40,000 creates a taxable temporary difference
2. Allowance for doubtful debt of $ 10,000 creates a deductible temporary difference
3. Provision for warranty cost of $ 30,000 creates a deductible temporary difference
4. Provision for employee benefits creates a deductible temporary difference of $ 20,000
b. As we know that taxable temporary difference creates deferred tax liability and deductible
temporary difference creates deferred tax asset. From the above we calculate the balance.
Deferred tax liability = $ 40,000 = 30% of 40,000 = $12,000
Deferred tax asset = $ 60,000 = 30% of 60,000 = $ 18,000
c. The taxable income for year ending 30 June, 2019 is:
Particulars Taxable Income ($'000)
Revenue 4000
Less: cost of goods sold 1800
2200
Less: Depreciation Expense 100
Less: Warranty Expense 70
Less: Bad and doubtful expense 15
Less: Other expenses 1375
Profit before tax 640
d.
Particulars
Carrying Income
($'000)
Taxable Income
($'000)
Revenue 4000 4000
Less: cost of goods sold 1800 1800
2200 2200
Less: Depreciation Expense 60 100
Less: Warranty Expense 90 70
Less: Bad and doubtful
expense 25 15
Less: Other expenses 1375 1375
Profit before tax 650 640

Corporate Accounting
The total deferred tax liability is depreciation of $ 40,000 = 30 % 40,000 = $ 12,000
The total deferred tax asset is $ 20 + $ 10 = $ 30,000 = 30% of 30,000 = $9,000
The journal entries are
No. Particulars Debit Credit
Deferred tax asset A/c $9,000.00
Income tax expense A/c $9,000.00
Deferred tax liability recorded
Income tax expense A/c $12,000.00
Deferred tax liability A/c $12,000.00
Deferred tax asset recorded

Corporate Accounting 3
2.
One more scenario when payments made to the employees can be considered, as an asset is
the case when advances are provided to the employee. Advances to employees represent a
payment that will be received and anticipated to be incurred by the employee for the business
expense that they will incur. The employer makes the payment to the employee and the
employee needs to prove the expense to the employer. Some of the examples of such
advances are like travel meal, entertainment and other such expenses.
As the employee has to pay back these advances to the company, provided that the payback is
usually less than a year, such advances are shown on the current asset side of the balance
sheet. The journal entry that would be passed for such advances given to the employees are as
follow:
Suppose the company gives his sales employee Jacob an advance of $500 a the beginning of
the month. The journal entry for this would be
No. Particulars Debit Credit
1 Employee Advances- Jacob $500.00
Cash $500.00
Now in the next month, when Jacob provide the details of the expenses incurred along with
that he will also be paid the advances for the next month. The journal entry would be
No. Particulars Debit Credit
1 Auto expenses $300.00
Food expenses $150.00
Miscellaneous expenses $50.00
Cash $500.00

Corporate Accounting
3
a.
Newspaper mastheads are internally generated intangible assets. They are termed as
identifiable intangible asset as they can be separately identified and sold. So, in this scenario
being an intangible asset as it can be sold in the future, we will consider the market value of
that time and pass the journal entry accordingly.
No. Particulars Debit Credit
Bank A/c
Newspaper Masthead
Being the sale of masthead
recorded.
This would be the journal entry passed at that time. Now no value has been shown, as the sale
will be recorded at the fair value at that time.
b.
Revaluation is a method to depict the true value of an asset of a company. Whenever there is
an increase or decrease in the market value of an asset, the changes are made to the asset and
a subsequent revaluation account to show the true and fair position of the company. In this
case as the value of the publishing title has increased, the following journal entry will be
passed to record the revaluation.
No. Particulars Debit Credit
Publishing Title $3,00,000.00
Revaluation Reserve A/c $3,00,000.00
The publishing title revalued.
c. Acquiring a franchise also becomes an asset for the company. Because of the goodwill of
the franchise name a company earns more and more money. Similarly in this case as the
franchise has a great demand at at other beaches as well and even the Booze Ltd value of the
franchise has increased because of this reason. To keep it as par with the market value and to
depict the true position.
No. Particulars Debit Credit
Franchise A/c $1,00,000.00
Revaluation Reserve A/c $1,00,000.00
The franchise revalued
d.
In this case the actual cost incurred and the amount recoverable in future has a difference.
The recoverable amount is higher than the amount actually spent, which means that the
revalued amount of the cost is higher than the amount actually spent. So, the difference will

Corporate Accounting 5
be credited to the revaluation reserve A/c. But this entry will only take place as and when
actually the amount will be reimbursed to DJB Ltd. Then the following journal entry will be
passed.
No. Particulars Debit Credit
Development cost A/c $3,40,000.00
Revaluation Reserve A/c $3,40,000.00
The development cost
revalued
4

Corporate Accounting
a. According to Para B16 of AASB 10 voting or similar rights will be given to the investor, if
there are range of operating and financing activities in the investee’s firm and which will
affect its returns as well and also when continuous decision making is required in this
process, then the power can be given to the investor. Here in this case we see that the bank
has financed ACT 503 and as a major financing investor, he can exercise power over the
investee according to AASB 10.
b. Here in the case of GyK Pty Ltd the information has been very unclear as to how the
bankers have taken possession of the companies assets. But if they had taken the possession
of all the assets it means that they did hold a significant control over the operations of GyK
Pty Ltd. We can assume that they were the sole and whole investors of GyK ltd. Hence, it can
be their decision what they want to do with the companies assets to recover their invested
amount.
c. Here in this case as the company ACT has major holding of 30 percent as compared to
other shareholders having 8-12 percent of holdings. This information is not sufficient to
understand whether ACT502 has the sufficient control over Investment Co. Pty ltd or not as
neither it has sufficiently major holding as compared to other neither shareholders nor does
anything else regarding contractual agreement in mentioned here in this case.
d. Here both B1 and B2 have equal holdings in the S ltd company. But as we see that the
working of the business activity is closely related to b1 and he also gets to appoint a
managing director of the company. Also he has options of the company, which he can
exercise at any point of time. All these rights and contractual agreements give B1 more rights
over S1 Company as compared to B2.
e. Here in the case of Chatime Tea Ltd. Though Boost Juice Ltd has a shareholding of 51%
as compared to Trampoline Ltd of 49%. Still, here we can say that Trampoline Ltd. Holds
more power has it has three seats as compared to two seats of Boost Juice Ltd. Also the
shareholders of Boost Juice Ltd are not so active, which gives major power to Trampoline
Ltd over the control of the company. Also with the last statement we can justify that they are
happy with the current way of functioning of the company.
f. Here as the companies have equal shareholdings of the company PGH Pty Ltd and also
having one board seat each defines that they have equal power over the company. But as G
ltd is involved in the running of day to day business and other members being passive, it is
obvious that the power of taking petty decisions stay with G ltd. But for a crucial decision to
be taken, other shareholders P Ltd and H Ltd also needs to agree to the decision taken.
5. Acquisition Analysis showing relevant calculations are as follow:

Corporate Accounting 7
First, we calculate the fair value of identifiable assets, liabilities and contingent
liability if any of the subsidiary company.
Net Fair Value in this case = Historical costs of net assets + changes in value of non
current asset and liabilities
Net Fair Value = $10,00,000 - $ 3,00,000 + $1,00,000
= $ 8,00,000
Here the changes in the value has been calculated as below:
The value of Property, plant and equipment = $ 7,00,000
Accumulated Depreciation = $ 2,70,000
Book Value = $ 4,30,000
Current Market value = $ 5,30,000
So, the increase in value = $ 1,00,000
Next we see the cost of combination. In our case it is $ 9,00,000
Goodwill = Cost- Fair Value of net assets
= $ 9,00,000 - $ 8,00,000
= $ 1,00,000
Fair value of asset adjustment entries are
No. Particulars Debit Credit
Property, Plant and Equipment $1,00,000.00
To Business combination valuation
reserve $1,00,000.00
Being the property, plant and equipment
revaluation recoded
Pre acquisition eliminating entries are as follow:
No. Particulars Debit Credit
Retained Earnings A/c $2,00,000.00
Share Capital A/c $5,00,000.00
Business combination revaluation reserve
A/c $1,00,000.00
Goodwill A/c $1,00,000.00
To Investment in TakeItEasy Ltd A/c $9,00,000.00
(Pre acquisition eliminating entries passed)
Consolidated worksheet showing column of elimination and adjustment are as follow
Consolidation Worksheet
Particulars Parent
($'000)
Subsidiary
($ '000) Adjustme Eliminati
Total
($'000)

Corporate Accounting
nt on
Cash $80.00 $40.00 $120.00
Accounts
Receivable
$50.00 $50.00 $100.00
Inventory $140.00 $123.00 $263.00
Land $600.00 $400.00 $1,000.00
Plant, Property and
Equipment
$900.00 $700.00 $100.00 $1,700.00
Accumulated
Depreciation
$-300.00 $-313.00 $10.00 $-623.00
Investment in
Beach Ltd
$900.00 $900.00
Goodwill $100.00 $100.00
Total non-current
assets
$2,370.00 $1,000.00 $3,560.00
Liabilities
Accounts Payable $100.00 $10.00 $110.00
Dividends Payable $100.00 $50.00 $40.00 $190.00
Loan $670.00 $140.00 $810.00
Shareholder's
Equity
Share Capital $1,000.00 $500.00 $1,500.00
Retained Earnings $100.00 $200.00 $40.00 $260.00
Profit after tax $400.00 $190.00 $590.00
B.C.V.R $100.00 $100.00
Total
Shareholder's
Equity
$2,370.00 $1,000.00 $3,560.00
The consolidated Balance Sheet of ChallengeMe Group is as below:

Corporate Accounting 9
ChallengeMe Pty Ltd
Consolidated Financial statement
as at 30 June 2019
Particulars Amount Amount
Assets
Cash $120.00
Accounts Receivable $100.00
Inventory $263.00
Land $1,000.00
Property Plant and Equipment $1,700.00
Accumulated Depreciation $-623.00
Investment in Take it easy Ltd $900.00
Goodwill $40.00
Total non current asset $3,500.00
Liabilities
Accounts Payable $110.00
Dividends Payable $190.00
Loan $810.00
Shareholder's Equity
Share Capital $1,500.00
Retained Earnings $260.00
Add: Profit during the year $590.00 $850.00
B.C.V.R $40.00
Total equity $3,500.00
REFERENCES
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Available at:

Corporate Accounting
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liabilities.html [Accessed 20 Sep. 2017].
Simplestudies.com. (2017). Accounting for advances to employees and officers -
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http://simplestudies.com/accounting-for-advances-to-employees-and-officers.html/
page/2 [Accessed 20 Sep. 2017].
CAclubindia. (2017). Revaluation of Assets. [online] Available at:
http://www.caclubindia.com/articles/revaluation-of-assets-73.asp [Accessed 20 Sep.
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